Despite the Federal Reserve reducing their official rates to between 1.5 per cent and 1.75 per cent, the central bank has not lowered the cash rate domestically.
In the lead-up to today’s decision, comparison site Finder had surveyed 45 of the nation’s leading economists and commentators, and found a majority expecting a rate cut to be held off until February next year.
Alison Booth, a professor of economics at ANU, was not surprised by today’s announcement, believing the Australian economy was strong enough to hold at its current rate.
“Interest rates have just been lowered and I don’t think the fundamentals yet warrant any further change.”
Becoming more bullish on the economy was AMP Capital’s Shane Oliver who believes the market is currently having a gentle upswing.
“While September quarter inflation was low and economic data has generally remained soft, recent RBA commentary highlighting a gentle upturn in growth and greater tolerance for low inflation suggests a lack of urgency to ease for now.”
Finder’s survey has foreshadowed even lower rates in the future, with 64 per cent of economists predicting a rate cut in 2020.
Graham Cooke, insights manager at Finder, said despite the rate falling from 1.50 per cent in May to a predicted 0.50 of a percentage point by February 2020, the general consensus is that the RBA’s cuts have had little impact thus far.
Fears of a recession
While further rate reductions won’t inspire the markets with confidence, 69 per cent of economists commented before today’s result, saying a recession is unlikely or very unlikely.
However, consumers are not as confident, with 50 per cent expecting a recession within the next 12 months.
Experts and economists have noted this worry and, as a result, more than half of them (56 per cent, 17/27) think households are holding back on spending in fear of recession.
Mr Cooke said there is recession talk at large, both domestically and internationally.
“While slow wage growth and underemployment seem like cause for concern for consumers, Australian economists can see the light at the end of the tunnel.”
